European shares tumble as US reciprocal tariffs kick in
European shares fell on Wednesday as the rollout of steep US retaliatory tariffs deepened fears over trade war-driven economic damage, spilling over into bond markets.
The pan-European STOXX 600, slumped 2.4% at 0749 GMT, as the previous session's rally fizzled out. The trade-sensitive Germany's benchmark index (.GDAXI), fell 1.7%.
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The STOXX 600 is currently about 15.5% below its all-time closing high and nearing the 20% threshold that would confirm a bear market.
Rate-sensitive banks slumped 1.4% as traders fully priced in an interest rate cut from the European Central Bank next week to shore up the deteriorating economy.
Chances of a quarter point rate reduction next week stood at 85% on Tuesday.
US President Donald Trump's reciprocal tariffs, including a 20% levy on select European Union goods, took effect on Wednesday, with the 27-member bloc set to vote on initial counter-measures later in the day.
European pharma giants Roche, Novartis and Novo Nordisk dropped between 5.5%-5.9% after the American president reiterated plans for a "major" tariff on all pharmaceutical imports.
Energy stocks slumped 3.3% as oil prices tumbled to their lowest in four years, while miners tanked 4.3% as the world's top metals exporter China was hit with a massive 104% levy. China has vowed to fight what it views as blackmail.
"China's not going to back down so yes, it is going to lead to further escalation," said Axel Rudolph, senior technical analyst at IG Group.
"I don't think that the volatility is anywhere near over. I think that we may well be just at the beginning of a major bear market," Rudolph said.
German finance minister Joerg Kukies said Europe's largest economy is at risk of another recession as a result of trade tensions. The euro zone is already struggling with recent hikes on autos and metals levies.
Investors also dumped US government bonds.
Germany's Redcare Pharmacy slumped 13.9% after launching a convertible bonds offering.
Meanwhile, Germany's conservatives and the centre-left Social Democrats are on track to reach agreement on forming a coalition government around midday, people familiar with the negotiations told Reuters.
